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It does support a core2 duo up to quad core but they have to be 1333fsb (front side bus). I suspect you have an early model of the cpu which isn't compatible with the 1333fsb such as a 670fsb. If you look at the back of your CPU you will see the model number. Google that and see the results. You will need to upgrade your CPU.

The fact about processors is that generally u will end up with changing the entire chipset because the new processors generally dont fit with old chipsets.If you are ready to shell out some extra money, you can choose the latest range of "Intel Core2 Duo" series or even go to the Quadcores.Post your budget and i will suggest a suitable one.

depends on what you plan to do with the cpu amd are good but a 3200 may only run @ 1.8 to 3.2 ghz depending while a intel 3200 will run 3.2 ghz.
I believe intel are more stable & run cooler than AMD but AMD benchmarks on Games better but run hotter (so get a good cooling fan & heatsink both pentium / celeron d & intel dou / dual core / core 2 dou and amd x2 have 2 cores (but watch your front side bus and cache the higher the better but the more $ also) then You need a good stable mobo that supports the chip you get (I preffer asus & msi for Gamers and biostar / msi for home users)

There really is no difference, there are differences in the E numbers though. Those are specificallt about it's GHz's, it L1 and L2 cache.

Though Intel Core 2 Duo is the same as Intel Dual Core. It's just a different name. This confusion is caused because of Intel changing the names of it's processors series. The Pentium brandname for example is gone. Intel Pentium Dual Core is now called Intel Core 2 Duo.